Dealing a potential setback to the Web search advertising market, a federal appeals court has reopened a lawsuit challenging the unauthorized use of trademarks in ads linked to search engine keywords.

The Ninth Circuit U.S. Court of Appeals in San Francisco on Wednesday found Playboy Enterprises can pursue charges that Excite and Netscape Communications violated its trademark by selling banner advertisements triggered by the terms "playboy" and "playmate." The decision reverses a district court ruling that dismissed the suit without a trial in 2000.

Playboy "clearly holds the marks in question, and defendants used the marks in commerce without (its) permission," a split three-judge panel wrote in its majority decision. "Some consumers, initially seeking Playboy's sites, may initially believe that unlabeled banner advertisements are links to Playboy's sites...Once they follow the instructions to 'click here,' and they access the site, they may well realize that they are not at a Playboy-sponsored site."

The decision comes at a time when search engine-related trademark cases are mounting, thanks to the growing popularity of keyword-auctioned advertising programs pioneered by Yahoo-owned Overture Services. Google, the darling of Internet search engines, faces trademark complaints from advertisers of its popular keyword-auction program that charge misuse of their trademarks. In December, Google asked a court to rule on whether its keyword-advertising policy is legal as a result.

Wednesday's court opinion backs up a recent decision related to another form of online advertising: pop-ups. In late December, as part of a lawsuit filed against WhenU by 1-800-Contacts, a New York district court granted a preliminary injunction that prohibits WhenU from triggering pop-ups when people visit 1-800-Contacts' Web site.

Scant trademark law exists when it comes to this type of advertising, and the opinion is the first on the issue from an appellate court, according to attorneys following the case.

John Baum, a partner in trademark and copyright law at San Francisco-based Townsend and Townsend, who is not involved in the case, said trademark owners stand to benefit from the decision, which offers a needed clarification of trademark rights in search engine marketing.

"The good news is that by reversing the...summary judgment for the defendant, the Ninth Circuit has confirmed that valuable trademark rights have to be respected," Baum said. "Some trademark owners will certainly welcome yesterday's decision as it leaves open to them trademark infringement and dilution arguments if someone uses their trademarks in a tag that links to a banner ad for competitive and even noncompetitive products."

The lawsuit centers on the search engines' practice of "keying," or selling and displaying ads related to search terms. Advertisers can buy the right to appear above or adjacent to search results related to specific query terms, such as "books" or "digital cameras." That means that when a visitor searches on the term "travel," for example, he or she might see an ad for an airline company. But advertisers also can use the system to prey on rivals' trademarked terms and poach their traffic.

In Playboy's case, it charged Excite with trademark infringement when it sold banner ads to adult-related sites keyed to the terms "playboy" and "playmate," arguing that it created consumer confusion and diluted its trademarked names. Playboy also claimed that Netscape violated its marks by displaying the same ads in partnership with Excite.

An earlier court decision dismissed the case on the grounds of fair use, among other arguments. The Ninth Circuit's analysis supports enough of a case for consumer confusion and brand dilution related to Playboy's trademarks that a trial likely will be heard.

Barry Felder, Playboy's counsel and a partner at Brown Raysman Millstein Felder & Steiner, said that the opinion is significant because it upholds traditional trademark law on the Internet.

"This type of analysis would apply no matter what the method of advertisement, with the key issue being whether or not a trademark is being used in a confusing manner," Felder said.

Defendants' attorney Jeff Riffer, a partner at Jeffer Mangels, said he was disappointed in the opinion, but that it could be precedent-setting.

"There's not much law in this area," he said. "This court said you need a trial to determine whether there's confusion around trademarks (as it applies) to keyed advertising that does not display the name of the advertiser."